Chinese consumer market set to grow by $1.8 trillion by 2021

03 August 2017 Consultancy.uk

Consumption across the world’s largest economies is set to increase significantly over the coming years to 2021, and while the US is projected to remain the largest consumer economy, growing by $2.9 trillion, China will rapidly rise by $1.8 trillion too. Consumer goods companies, among others, are exploring ways to tap into the increasingly enticing Chinese market to sell their goods, however, questions on the sustainability of increased consumption regarding resource inefficiency and climate change continue to linger.

Consumer goods companies are eyeing up the potential for growth across the globe, trillions in new consumer consumptions is projected to come online in the coming decade. A new report from Boston Consulting Group (BCG) explores growth in consumption in the Chinese market. The report, which was created in collaboration with Alibaba, explores growth in consumption as well as wider market trends and consumer groups.

Consumption across the world’s largest economies is set to grow significantly in the years between 2016 and 2021. The US will see the biggest growth, with consumption up $2.9 trillion, from $12.8 trillion to $15.7 trillion. China will see the second biggest increase, with consumption behaviour up $1.8 trillion, from $4.4 trillion to $6.1 trillion. India, meanwhile, will see growth of $0.8 trillion, to $2.1 trillion total.

China adds nearly $2 trillion in consumption

According to the study, growth in China is set to significantly outperform the economy, whose growth rate stands at under 7% last year, while consumption growth stood at around 10% - largely due to the structural shift in the Chinese economy, as part of the latest five-year plan. The rapid expansion of the Chinese and US economies is likely to put increasing pressure on consumer goods companies to clean up their supply chain and improve their sustainability track records. Plastic waste in China has been highlighted as a key area of concern in recent reports.

Meanwhile, various studies have highlighted that finite resources with the current global cradle-to-the-grave model, which could be replaced by a circular one, may mean that extensive damage will be done with little real value gained from the consumption itself.

Factors driving consumption growth

The research considers various factors influencing the growth of consumption in China between last year and 2021. One of the major factors cited is growth in income, with the emerging middle class accounting for around 25% of the impact of income, while the upper middle and affluent classes account for 75% of the impact – with many wealthier consumers purchasing big ticket consumer items, as well as trading up to better quality goods and services.

Later generations, the research notes, are more keen to spend – with 69% of the spending impact arising from millennials. Multi-channel purchasing is also a noted factor in consumption, while there is a general split between those that purchase products and those that purchase services. The higher tier cities, which house more of the affluent, are also the more likely factor to affect purchasing behaviour.

Middle class growth in China

The growth of the emerging middle class is set to stagnate this year, before beginning a slow decline to 2030. The upper middle class and the affluent class are meanwhile expected to see strong growth in the same period. The affluent class will hit around 60 million households by 2030, up from around 20 million this year – with incomes of more than $3,400 per month. The upper middle class is set to explode, hitting 150 million by 2030, up from around 50 million today – with incomes for the group between $1,800 and $3,400.

The study further identifies millennials as a key segment of consumption behaviour. The segment is set to generate around 11% CAGR in consumption growth to 2021, compared to 5% CAGR for older age groups - the result is that millennials will account for 69% of total consumption growth in the period, or around $2.6 trillion across the economies surveyed.

Young consumers show higher consumption

“A lot is changing in China, but the fundamental story is one of very strong growth through 2021,” said the report’s co-author Jeff Walters, a Partner at BCG. “This market is growing by trillions of dollars, and companies that take the right steps today will set themselves up to win over the long term.”

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